A project has an initial investment of $150. You have come up with the following estimates of revenues and costs. Calculate the NPV assuming that cash flow and perpetuities. (No taxes.) (Cost of capital = 10%)
$$\begin{array} { l c c c }
& \text { Pessimistic } & \text { Most Likely } & \text { Optimistic } \
\text { Total revenues } & + 30 & + 50 & 65 \
\text { Total costs } & - 25 & - 20 & - 15
\end{array}$$
A) 50, -100, +400
B) -50, +300, +500
C) -100, +150, +350
D) None of the above

Question

A project has an initial investment of $150. You have come up with the following estimates of revenues and costs. Calculate the NPV assuming that cash flow and perpetuities. (No taxes.) (Cost of capital = 10%)
$$\begin{array} { l c c c } 
& \text { Pessimistic } & \text { Most Likely } & \text { Optimistic } \
\text { Total revenues } & + 30 & + 50 & 65 \
\text { Total costs } & - 25 & - 20 & - 15
\end{array}$$
A) 50, -100, +400
B) -50, +300, +500
C) -100, +150, +350
D) None of the above

Quizplus · Accepted Answer

The NPV is calculated using the formula: NPV = (Net Cash Flow / Cost of Capital) - Initial Investment. For each scenario:  - Pessimistic: Net Cash Flow = 30 - 25 = 5; NPV = (5 / 0.10) - 150 = -100  - Most Likely: Net Cash Flow = 50 - 20 = 30; NPV = (30 / 0.10) - 150 = 150  - Optimistic: Net Cash Flow = 65 - 15 = 50; NPV = (50 / 0.10) - 150 = 350

A Project Has an Initial Investment of $150 A) 50, -100, +400 B) -50, +300, +500 C) -100

A Project Has an Initial Investment of $150 A) 50, -100, +400
B) -50, +300, +500
C) -100